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Beck Company is concerned about quality and is considering upgrading the materials used in its product to a higher quality. Doing so would cost an additional $1.65 per unit. Using the higher quality material should reduce the defective rate from 7% to 4%. Defective units are returned under warranty for repair or replacement. The manufacturing costs before upgrading the material are $75 per unit. Management believes that the external failure costs of warranty are $53 per defective unit. The normal volume of units produced and sold is 2,000 units.

a. Compute the incremental costs of upgrading the material versus allowing the higher defect rate to continue.
b. Identify and describe two other nonfinancial factors management should consider in this decision.
c. Should management upgrade the material?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9418541

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